Did an out-of-state catalog seller's limited Florida employee and trade-show visits create sales-tax nexus under this 2001 ruling?

Subject

Nexus

Plain-English summary

The Department did not give the seller an unconditional no-nexus ruling. It said nexus would be absent only if the company had none of the specified Florida contacts: representatives who sold, solicited or took orders, delivered goods, accepted payment, serviced merchandise, or otherwise represented it; Florida property or offices; or certain agency, fiduciary, or common-management relationships with another entity.

The seller reported no Florida office, inventory, or resident personnel. Orders were approved outside Florida and shipped by common carrier, while occasional visiting employees only presented catalog information and attended trade shows without making sales. The ruling nevertheless stressed that nexus depended on the exact facts and the physical-presence cases applied at that time.

What this means for you

This is historical, fact-specific guidance from 2001, not a current bright-line safe harbor. Even under its own analysis, occasional in-state activity had to be examined for solicitation, order handling, service, property, or representation beyond mere interstate communication.

Common questions

Q: Did common-carrier delivery alone establish nexus? No, under the cases and facts discussed in the ruling.

Q: Could in-state representatives establish nexus? Yes, depending on what they did.

Q: Did the Department rule out nexus on the submitted facts? No; it stated a conditional conclusion based on the absence of listed contacts.

Citations and references

• Fla. Stat. §§ 212.06 and 212.18 — dealer status and registration
• Scripto, Inc. v. Carson, 362 U.S. 207 (1960)
• National Geographic v. Board of Equalization, 430 U.S. 631 (1977)
• National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967)
• Quill v. North Dakota, 112 S. Ct. 1904 (1992)
• Department of Revenue v. Share International, Inc., 676 So. 2d 1362 (Fla. 1996)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-002

Original ruling text

SUMMARY

QUESTION: Do the activities of the company create
substantial nexus with Florida?

ANSWER - Based on Facts Below: Substantial nexus may be
established if the company:
*

Has employees, agents, or representatives that sell or
take orders, solicit orders, deliver merchandise,
accept payments, service merchandise, or represent the
company in Florida through some other activity.

*

Owns or leases any tangible personal property or real
property in Florida.

*

Maintains any office or retail establishment that is
physically located in Florida.

Jan 08, 2001

Re: Technical Assistance Advisement 01A-002
Sales and Use Tax - Nexus
Sections: 212.06, 212.18, F.S.
Petitioner: XXX (herein "Company")
FEI: XX

Dear :

This letter is a response to your petition dated November 28,
2000, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

You state that Company is incorporated in a state other than
Florida. In Florida, Company's activities are limited to

selling tangible personal property to customers within Florida.
Company has neither an office, nor physical location, nor
inventory in Florida. The majority of Company's sales are made
by telephone. Company has approximately one or two employees
that have visited Florida up to four times a year. Company
expects the visits not to exceed five times a year in the
future.

These employees, who live outside of Florida, do not have the
authority to accept or reject orders that would contractually
bind Company or to process orders. Orders are sent outside of
Florida to be approved and shipped by way of common carrier.
Company's representatives merely convey as much information
regarding its products as is available in its catalog to
prospective customers. At no time do in-person sales take place
in Florida in which the customer takes immediate possession of
tangible personal property.

Company does have representatives that attend trade shows in
Florida to present and promote its products every year to year
and a half. No sales are made at these trade shows. Company
does not provide any service to what it sells in Florida.

REQUESTED ADVISEMENT

You request advice as to whether the activities described
establish substantial nexus with the State of Florida for sales
and use tax purposes.

LAW AND DISCUSSION

Section 212.06, F.S., provides that sales tax is collectable
from all dealers. This statutory provision defines "dealer" as
any person who has an office within this state, a distributing
house, salesroom, or house, warehouse, or other place of
business, or who imports tangible personal property into this
state for sale at retail. That section further defines as a
"dealer" every person who solicits business through
representatives or agents and as a result receives orders for
tangible personal property from consumers for use in this state.

Section 212.18, F.S., specifically provides that all persons
must be registered dealers before engaging in business in
Florida. However, a state's ability to compel an out-of-state
vendor to collect and remit sales tax has been strongly opposed
by out-of-state dealers on the grounds that it conflicts with
the Commerce Clause and the Due Process Clause of the United
States Constitution.

Since it is a settled principle that visible territorial
boundaries will not always establish the limits of a state's
taxing power or jurisdiction, the states have turned to the
activities of these out-of-state dealers to establish the
necessary ties between the out-of-state dealer and the taxing
state (Florida). Thus, if there is some activity by the out-ofstate dealer to serve as a conductor, and establish nexus, the
reach of a state's taxing power may extend beyond its borders.

To this extent, our view of the definition of "nexus" is any
activity, relationship, connection, link, or tie which subjects
a person to the taxing powers of Florida. Nexus is also a term
which may be used to describe the degree of business activity
that must be present before Florida has the right to impose a
tax. Accordingly, the underlying constitutional problem with
respect to the imposition of a sales tax liability upon an outof-state dealer is whether or not there is some in-state
activity or event to serve as a conductor for the state's taxing
power.

Due to the complexity and intricacies of the nexus issue, courts
have dealt with nexus on a case-by-case basis, relying heavily
on the specific facts of each case. Therefore, the liability of
any out-of-state dealer, engaged in activities that are not
exactly the same as those already litigated, remains clouded.

To help decide whether an out-of-state dealer has tax nexus in
Florida, as a result of its own individual facts and activities
in Florida, an examination of the holdings of some of the
leading cases is useful. Some of these cases have determined:

The presence of independent contractors or salesmen,
soliciting business, in a state is sufficient nexus to

create sales or use tax obligation on the part of a
taxpayer. Scripto v. Carson, 362 U.S. 207 (1960);

b. The presence of offices physically located in a state is
sufficient nexus to create a tax obligation on the part of
a taxpayer. National Geographic v. Board of Equalization,
430 U.S. 631 (1977); and

c. An out-of-state mail-order house, which did not have any
employees, agents or representatives to sell or take
orders, deliver merchandise, accept payments, or service
merchandise, or which did not own any tangible property
(other than catalogues and advertising flyers), real or
personal, and which delivered merchandise to customers
either by mail or by common carrier, did no more than
communicate with customers by mail or common carrier as
part of a general interstate business. Therefore, the
requirement that the taxpayer collect and pay the use tax
violated the Due Process and Commerce Clauses. National
Bellas Hess v. Illinois, 386 U.S. 753 (1967).

The U.S. Supreme Court sustained a portion of the National
Bellas Hess ruling with its holding in Quill v. North Dakota,
112 S.Ct. 1904 (1992). The Quill case made it clear that
"substantial nexus," or the "physical presence" requirement set
forth in Bellas Hess, was still required. The Quill court also
explained that a taxpayer might have the "minimum contacts" with
a taxing State as required by the Due Process Clause, and yet
lack the "substantial nexus" with the State required by the
Commerce Clause. The Court explained:

[T]he [Due Process and Commerce Clauses] pose distinct
limits on the taxing powers of the States. Accordingly,
while a State may, consistent with the Due Process Clause,
have the authority to tax a particular taxpayer, imposition
of the tax may nonetheless violate the Commerce Clause.

[T]he Due Process Clause and the Commerce Clause reflect
different constitutional concerns. Moreover, while
Congress has plenary power to regulate commerce among the
States and thus may authorize state actions that burden

interstate commerce, ... it does not similarly have the
power to authorize violations of the Due Process Clause.
Quill v. North Dakota, 112 S.Ct. 1904, at 1909.

The case Wisconsin Department of Revenue v. Wrigley, Jr., Co.,
505 U.S. 214 (1992) involves an appeal of a finding of nexus for
the purpose of liability for income tax where the taxpayer
solicited business in Wisconsin and replaced product on display
in Wisconsin. The taxpayer's representative replaced chewing gum
on display, in order to be certain that its product sold was
always fresh. The court found the gum replacement to be an
independent business function quite separate from requesting
orders, and, as such, it did not qualify for 15 U.S.C. s. 381
immunity. The court reasoned that since providing the gum was
not entirely ancillary to requesting purchases, it was not
within the scope of "solicitation of orders."

It should be noted that nexus, for state income tax purposes, is
restricted by federal statute. Congress prohibits the States
from imposing taxes on income derived from "business activities"
in interstate commerce and limited to the "solicitation of
orders" under certain conditions. 15 U.S.C. s. 381(a). Nexus,
for sales tax purposes, is governed by case law that is far less
restrictive.

The case cited in support of your position, Department of
Revenue v. Share International, Inc., 676 So.2d. 1362 (Fla.
1996), held that a corporation that sold chiropractic supplies
primarily through direct mail solicitation, which has no
offices, employees or agents residing in Florida, does not have
sufficient presence in Florida to permit Florida to require the
corporation to collect and remit Florida taxes on mail order
sales to Florida residents. In order to so hold, the court
considered the fact that the corporation had a presence in
Florida for approximately three days each year for seminars at
which its products were available for sale and decided that this
did not create nexus. While this appears to protect Company from
creating nexus from its employees visiting Florida and
presenting Company's product without accepting orders for the
product, it is necessary to look more closely at Share's facts
and what the court actually held.

Share concerned an educational seminar, not a trade show, where
eighty-four percent of the attendees were from out of state. The
holding in that case is limited to its facts. The court found
that, under those facts (that is, representatives accepting
orders for three days from the attendees, eighty four percent of
whom were from out of state), the activities did not constitute
sufficient contacts with the state to constitute nexus. The most
that can be drawn from that decision is that a business with no
agents soliciting orders, no employees, no offices, retail
outlets, locations of any kind, or property located in Florida,
does not have nexus. An out of state business, whose sole
activities in the taxing state are mail order sales, meets the
"bright line" test adopted in National Bellas Hess and does not
have nexus. Otherwise, cases where the out of state business has
additional connections in this state must be analyzed on a case
by case basis under the "substantial nexus" test set out in
National Bellas Hess, National Geographic, and Quill.

It is not possible, from the facts presented in your letter, to
rule out that your client has nexus. However, as ascertained
from the preceding case law, substantial nexus between your
client and Florida may be established if your client:

1. Has employees, agents or representatives that sell or
   take orders, solicit orders, deliver merchandise, accept
   payments, service merchandise, or represent your client in
   Florida through some other activity;

2. Owns or leases any tangible personal property or real
   property in Florida;

3. Maintains any office or retail establishment that is
   physically located in Florida.

CONCLUSION

In conclusion, if your client does not retain any tangible
personal property in Florida or have employees, agents or
representatives which sell or take orders, solicit orders,
deliver merchandise, accept payments, service merchandise, or

represent your client in Florida through some other activity;
own or lease any tangible personal property or real property in
Florida; maintain any office or retail establishment that is
physically located in Florida; or have an agency or fiduciary
relationship with its subsidiary or have common management with
any entity that does, it can be said that your client does not
have nexus in Florida and in that case would not be required to
register with the Department to collect or remit sales tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the department
only under the facts and circumstances described in the request
for this advice, as specified in Section 213.22, F.S. Our
response is predicated upon those facts and the specific
situation summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice
is based may subject similar future transactions to a different
treatment from that which is expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #43232